Why Exxon Is Poised to Bounce Back

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Last Friday, Raymond James upgraded energy gorilla Exxon from outperform to strong buy, reigniting investor optimism over a rebound in the stock.

So what: Along with the upgrade, analyst Pavel Molchanov reiterated his price target of $98 per share, representing about 14% worth of upside to where the stock sits now. Exxon shares have been sluggish over the past year, but Molchanov thinks that the company's strong cash flow outlook, coupled with the stock's tendency to outperform during turbulent times, makes it a particularly timely pick.

Now what: Raymond James expects the valuation gap between Exxon and its peers to steadily close. "Using our $95/Bbl Brent forecast for 2014, the FCF yield of 4.9% compares to the megacap peer average of 2.7%," Raymond James noted. "Importantly, this does not ascribe any credit for capital spending reductions in 2014, which we think are realistic given that four of Exxon's top projects of this decade (Kearl, Kashagan, Gorgon LNG, PNG LNG) are either completed or close to it." When you combine that cash flow upside with the stock's recent pullback, it's tough to argue with Raymond James' bullish opinion on Exxon. 

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The article Why Exxon Is Poised to Bounce Back originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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